How the British government struck such a terrible deal as Hinkley Point C nuclear power project

Hinkley Point: the ‘dreadful deal’ behind the world’s most expensive power plant Building Britain’s first new nuclear reactor since 1995 will cost twice as much as the 2012 Olympics – and by the time it is finished, nuclear power could be a thing of the past. How could the government strike such a bad deal?Guardian,By Holly Watt, 21 Dec 17, Hinkley Point, on the Somerset coast, is the biggest building site in Europe. ……

the irony of Hinkley Point C is that by the time it eventually starts working, it may have become obsolete.Nuclear power is facing existential problems around the world, as the cost of renewable energies fall and their popularity grows. “The maths doesn’t work,” says Tom Burke, former environmental policy adviser to BP and visiting professor at both Imperial and University Colleges. “Nuclear simply doesn’t make sense any more.”

The story of Hinkley Point C is that of a chain of decisions, taken by dozens of people over almost four decades, which might have made sense in isolation, but today result in an almost unfathomable scramble of policies and ambitions. Promises have been made and broken, policies have been adopted then dropped then adopted again. The one thing that has been consistent is the projected cost, which has rocketed ever upwards. But if so many people have come to believe that Hinkley Point C is fundamentally flawed, the question remains: how did we get to this point, where billions of pounds have been sunk into a project that seems less and less appealing with every year that passes?

……… By the end of 2003, all government policy indicated that Hinkley Point C would never be built, and there was no prospect of any other new nuclear power plants. It seemed certain that nuclear had no future in Britain – which is why, when the government performed a volte-face three years later, so many onlookers were astonished. “Without any obvious change in the world, by 2006, the position in government had been completely reversed,” MacKerron told me. “Nuclear power had become extremely beneficial, important and not uneconomic.”

One thing that had happened in the intervening years was a PR blitz by the nuclear industry, which had deployed scores of lobbyists, including former politicians such as the former energy minister Brian Wilson, to push the idea of a “nuclear renaissance” in the UK. Between 2003 and 2006, says Andrew Stirling, professor of science and technology policy at Sussex University, “Britain saw the beginnings of a massive pro-nuclear lobbying and PR campaign that continues to this day.”

Through the media and advertising campaigns, key messages were hammered home. Renewables were intermittent and unreliable. Overseas gas imports were politically vulnerable. “Green” nuclear was the only plausible way to hit carbon dioxide reduction targets. Keith Parker, who was then chief executive of the Nuclear Industry Association (NIA), told the New Statesman that the 2005 election became a particular focus for swaying opinions. “It gave us a good chance to raise the profile of nuclear power,” he said. In the months leading up to the election, a series of talks was organised at exclusive venues such as the Army & Navy Club on Pall Mall and St Stephen’s Club in Queen Anne’s Gate. Industry leaders and experts came together to explain the benefits of nuclear to politicians and energy journalists. The NIA (which is now chaired by John Hutton) took on the role of managing the influential all-party parliamentary group – an informal grouping of politicians – on nuclear energy.

In July 2006, the government U-turn arrived in the form of a new policy paper, The Energy Challenge, which declared that new nuclear power stations would be necessary to help Britain reduce its carbon emissions and to ensure an uninterrupted, affordable supply of energy well into the future.

Greenpeace launched a legal challenge, claiming that the consultation process behind the government’s recommendation had been totally inadequate. The judge presiding over the case agreed, and in February 2007 ruled that the process had been “misleading”, “very seriously flawed” and “procedurally unfair”. Blair accepted the ruling, but stated that “this won’t affect the policy at all”.

Andrew Stirling believes that there was a crucial, largely unspoken, reason for the government’s rediscovered passion for nuclear: without a civil nuclear industry, a nation cannot sustain military nuclear capabilities. In other words, no new nuclear power plants would spell the end of Trident. “The only countries in the world that are currently looking at large-scale civil power newbuild programmes are countries that have nuclear submarines, or have an expressed aim of acquiring them,” Stirling told me.

Building nuclear submarines is a ferociously complicated business. It requires the kind of institutional memory and technical expertise that can easily disappear without practice. This, in theory, is where the civil nuclear industry comes in. If new nuclear power plants are being built, then the skills and capacity required by the military will be maintained. “It looks to be the case that the government is knowingly engineering an environment in which electricity consumers cross-subsidise this branch of military security,” Stirling told me.

In May 2007, the government published a paper titled “Meeting the energy challenge: a White Paper on energy”, which reaffirmed its enthusiasm for nuclear and declared that there had been “significant changes in the economics of nuclear power”. In contrast to the late 1980s, the government claimed it was now being approached by “some energy companies expressing a strong interest in investing in new nuclear power stations”.

When Gordon Brown took over from Blair in June 2007, the shift to nuclear proceeded apace. As it happened, the new prime minister’s brother, Andrew, was then the communications director for EDF, though a spokesman for Gordon Brown told me that at no point while he was prime minister “did he ever discuss energy policy with Andrew Brown”.

In January 2008, the announcement came. A new generation of nuclear power stations in the UK was given formal backing by the government. “It was one of the most exciting days in my ministerial life,” says Hutton. “Ministers do lots of important things all the time, but there are probably those moments in your ministerial career when you sit back and think: ‘Actually, this is going to have an intergenerational effect. This is going to affect the country 50, 60, 70 years after I’ve gone.’”

The development at the top of the list was Hinkley Point C……….

With no real plan B after the private sector had lost interest in Hinkley Point, the government suddenly found itself in a weak negotiating position. “They perhaps didn’t foresee that only one developer, EDF, was prepared to go ahead,” said MacKerron. “So by definition, they were a bit over a barrel.”

In September 2008, British Energy was sold to EDF. After months of long and difficult negotiations between EDF and a team of civil servants representing the UK’s interests in British Energy, and an earlier failed bid, the French company paid £12.5bn to take over eight UK nuclear power plants. It also announced its plan to develop four new power stations.

These days, EDF looks like an unlikely white knight. The market value of the company has collapsed, from more than €150bn (£132bn) in 2008 to roughly €30bn (£26bn) today, and the French nuclear industry is facing an existential crisis.

…….. The financial deal that EDF struck with the British in October 2013 to fund the project – which, in Magnin’s words, amounts to the British taxpayer funding France’s energy needs – remains one of the most controversial elements of the Hinkley deal.

Given its commitment to building Hinkley Point C, the government had no choice but to make EDF an offer that was too good to resist. It offered to guarantee EDF a fixed price for each unit of energy produced at Hinkley for its first 35 years of operation. In 2012, the guaranteed price – known as the “strike price” – was set at £92.50 per megawatt hour (MWh), which would then rise with inflation. (One MWh is roughly equivalent to the electricity used by around 330 homes in one hour.)

This means that if the wholesale price of electricity across the country falls below £92.50, EDF will receive an extra payment from the consumer as a “top-up” to fill the gap. This will be added to electricity bills around the country – even if you aren’t receiving electricity from Hinkley Point C, you will still be making a payment to EDF. ……..

In short, instead of using taxpayers’ money to fund a state subsidy for EDF, the government negotiated a deal whereby the electricity consumer foots the bill. Given that almost every taxpayer in the UK is an electricity consumer, the distinction is largely academic. …….

The deal looks particularly bad when compared with the current cost of renewable energy. As Hinkley’s pricetag keeps rising, the cost of energy keeps falling. And, as a recent report from the public accounts committee pointed out, although energy costs are falling, this just drives up the top-up payment to EDF. “No one was protecting the interests of energy consumers in doing the deal,” the report noted.

In December 2013, the European commission decided that the payments to EDF were so big that they could distort the electricity price across the whole of Europe, and launched an investigation into the deal. The resulting document, published in 2014, can be read as a 33,000-word attempt by the EU to save the UK from its own poor negotiating.

The commission raised several issues………

In 2012, as it was preparing to negotiate the strike price with EDF, the government hired the consultancy firm LeighFisher to assess construction costs for Hinkley. The higher the cost estimated by LeighFisher, the higher the strike price for EDF.

However, as the National Audit Office pointed out in June 2017, LeighFisher is owned by Jacobs Engineering Group. And at the same time that LeighFisher was assessing Hinkley Point construction costs, Jacobs was working for EDF, with some of its staff seconded to the French company. The National Audit Office points out that Jacobs staff were having “input” into LeighFisher’s cost verification exercise.

In short, a division of a company employed by EDF was advising the UK government how much to pay EDF.

……. Hinkley Point C will be the third nuclear reactor to be built on this site. These days, its oldest brother, Hinkley Point A, which began operating in 1965 and was decommissioned in 2000, is dilapidated, with large holes gaping in its blue walls. Hinkley Point B, which began operating in 1976 and is scheduled to be decommissioned in 2023, stands 300 metres to its right – an anonymous grey hulk, disappearing against the sky, as steam from its huge chimneys floods into the clouds………

“My grandchildren will be paying for this,” Allan Jeffery from Stop Hinkley told me, as we walked around the outer boundary of the site earlier this year.

The government estimates that the Hinkley top-up payments will cost consumers around £30bn over the course of the 35-year contract. One of the few figures on a comparable scale is the Brexit divorce bill.

The story of Hinkley point contains another echo of – or perhaps a warning for – the Brexit negotiations. With Hinkley, even though the UK’s position got steadily worse, at no point did the government seriously try to force the terms of the deal. It simply couldn’t, because it had backed itself into a corner.